Do you eat out the same amount each month? Why Budgets Do Not Work and What Does.
Your life is filled with routines, but it is also filled with stuff that comes up every month. It’s really never the same month to month, right? Every month seems like an exception when it comes to spending. Every month changes.
Think about the expenses that change every month. Is it really your cell phone bill, or aftercare at school, or your car payment? Nope. Those things stay basically the same. You buy about the same amount of gas for your car, and go to the grocery store and get your hair cut about the same amount. Even your utilities are pretty predictable.
So what does change? The Full Discretionary part of your finances. Yup, the fun money. You have a birthday, you tear a favorite pair of pants, your kid needs a new hockey stick, you donate to a favorite cause, or you replace a microwave on the blink.
That's why budgets do not work because if you give yourself 10 categories with amounts in them that make sense for one month, they may not make sense AT ALL for the next month. If you say you will limit “eating out” to $200/month, great, then when your best friend comes to visit and... It's an exception, right?
You get frustrated because these annoying little categories DO NOT UNDERSTAND YOU. Then what? You give up and forget about it. That’s what happens to most people.
Here’s what to do instead. Consider all your full discretionary money in one pot each month. Do not worry about what you’re spending your Full Discretionary money on, just that you DO NOT SPEND MORE than your limit.
Here’s how to do it:
- Estimate how much you spend on fixed expenses (or slightly variable like utilities) each month. Include all recurring bills like violin lessons, haircuts, therapy, etc.
- Get your take home income (NOT PRE-TAX, but the amount actually deposited on payday) for the month and subtract your fixed expenses for the month
- Subtract the amount you want to save each month (yes, you should save each month!) for goals and Annual Needs
- See what’s left. That’s your Full Discretionary pot.
- Track it each month with an app (here is my favorite) or on paper. Each time you go out to dinner, subtract the amount of dinner from your pot
- Stop buying/spending when you hit $0 for the month. It’s very eye-opening!
Remember, you are the adult. You should be able to make decisions about what to buy. That’s the freedom part, the responsibility part is making sure you do not spend more than you have for fun things.
Top 5 Tips for College Student Managing Their Money at School
It’s just after Labor Day weekend. Fall is in the air, stores are already selling Halloween candy and your college student may have just left for college a few days or weeks ago. Do you think your college student knows how to manage his/her money at school?
Whether your child is an aspiring poet, physicist or econ major, your child needs to be able to manage his own money while in college or you will be the perennial ATM machine in his life.
Here are the 5 things I tell all my clients’ children when they go off to college:
- Know EXACTLY how much spending money you have for the month or semester (depending if your spending money is allotted for the month or semester)
- Choose how often you want to get your spending money: each week like an allowance, each month like a salaried person or maybe you can handle it for the whole semester (risky)
- Have a checking and savings account at a convenient bank where you go to college:
Agree with your parents who is paying for non-discretionary items like books, IT, special class equipment, etc.
- put all your spending money for the semester or month in the savings account.
- Have the bank AUTOMATICALLY transfer a certain amount per week or month to your checking/debit account and that’s your spending money.
- When you’re at $0, you’re done for the period until you get the next transfer.
- If you do not spend it all, it rolls over the next week/month.
Agree with your parents who pays for visits home and how many. Do not expect to have money left over for plane/train tickets. It’s expensive. If you are responsible, put enough for 2-3 trips home away in savings before going back to school and do not touch it except for plane/train tickets.
- If you have to pay for it, put that in your savings, too, and do not touch it until you need to buy those items, then transfer the exact amount and write the check (or whatever way you pay for it)
The last item is not trivial. If your child thinks she needs to pay to get home and ran out of money, she may try to find a way home that puts her safety at risk. Put that money aside early and do not touch it. Make sure your child knows his safety is more important than anything financial.
Lastly, and maybe most importantly: AGREE with your kids what is discretionary and what is not. Yes, this may require a slightly uncomfortable discussion, because you think her guitar is discretionary and she thinks her guitar helps with her homework. Get it out in the open and agree to prevent arguments later.
Lori Atwood on TV Talking about How Much It Takes to Keep Your Household Going Each Month